Ask the Contractor: A primer on homeowners insurance

With the recent fires and floods that occurred in our county, we have received several insurance questions.

How do you know the coverage on your home is adequate?

If you think the value of your home may have increased (if you put on a new addition or make significant upgrades, for instance) or if the cost to rebuild your home has increased, discuss the adequacy of your dwelling coverage with your agent. Market value is an indicator that the cost to replace your home may have increased, but insurance is based on “replacement cost,” not market value. If your dwelling is underinsured, it could mean you will not receive the full benefits available under the policy should you have a total loss.

Is the coverage on my home’s “contents” adequate?

For example, if you buy a new computer or large appliances, or if you sell off significant amounts of personal property, talk to your agent to be sure that your contents coverage is appropriate.

How much will raising my deductible save me on my premium payments?

Policyholders may significantly reduce their premium payments by raising their deductible.

Do I have Replacement Cost or Actual Cash Value coverage on my dwelling or on my contents?

Replacement cost is what it would cost to completely replace your house or any part of it, or replace your belongings with new items of “like kind and quality” without deduction for depreciation. Rebuilding your home could cost more or less than the “market value” of your house. Insurance policies often restrict the amount of replacement coverage. Make sure you understand the maximum limit on your replacement cost coverage. Actual Cash Value (ACV) is the cost to repair or replace the damaged property with materials of like kind and quality, less depreciation of the damaged property. This generally applies to your “contents” coverage but there are policies that pay ACV on dwellings, as well.

Do I have or need coverage for “Increased Cost to Changes in Building Ordinances”?

When building a house, there are government requirements that builders have to follow (using a certain type of wiring, installing sprinklers, for example). These changes can increase the cost of rebuilding your home.

Do I have or need “Inflation Guard” protection?

Many homeowners insurance policies issued today provide this, but you should ask your agent about it. This coverage automatically increases the amount of dwelling insurance to help prevent your home from being underinsured.

Do I have or need special coverage for adjacent structures, jewelry, firearms, furs, art and computers?

Most homeowner policies provide some basic, very limited coverage for these items. However, depending on the amount and value and type of special items you will want to discuss this with your insurance agent.

Do I need to appraise any of my belongings?

It’s a good idea to have valuable items appraised, especially if they cannot easily be replaced, for example, antiques, jewelry, coins, and artwork. With an appraisal, your agent can more accurately evaluate whether your contents are adequately insured. Further, you should maintain a list naming each item and providing a brief description of it in case of loss.

Do I have an “all risk” or “named peril” policy?

Be sure you know which type of policy you have and what causes of loss will be covered. All Risk: means they cover the largest number of causes of loss (freezing, collapse, fire, windstorm, smoke, etc.). However, there are some exclusions in all homeowners policies, including but not limited to damage caused by flood, war, neglect, and mold and power failure. Named Peril: Some homeowners insurance policies limit the covered causes of loss to those specifically listed or named in the policy.

Here are some easy tips to remember:

BASIC HOMEOWNERS INSURANCE COVERAGES

Homeowners insurance combines more than one type of coverage into one policy. Usually, four types of coverage are contained in the policy: (1) Dwelling and Personal Property; (2) Liability; (3) Medical Payments; and, (4) Additional Living Expenses.

(1) Dwelling and Personal Property Coverage helps pay for any structural damage to your home. Don’t forget to look at other structures on your property such as detached garages, a storage sheds or any other building on your property. Personal property coverage pays for your contents including household furniture, clothing and other personal belongings.

(2) Personal Liability Coverage: Homeowners insurance provides personal liability coverage that applies to non-automobile accidents on and off your property if the injury or damage is caused by you, a family member, or your pet. The liability coverage in your policy pays both for the cost of defending you and paying for any damages a court rules you must pay. Unlike other coverage in a homeowner’s policy, the liability coverage does not have a deductible that must be met before the insurer pays. The basic limit is usually $100,000 for each occurrence, but you may request higher limits, which are normally available for an additional cost.

(3) Medical Payments Coverage pays if someone outside your household is injured at your home regardless of fault and pays for reasonable medical expenses. In limited circumstances, Medical Payments may pay if you are involved in the injury of another person away from your home.

(4) Additional Living Expenses: If you must temporarily move into a motel or apartment due to a loss covered by your policy, the insurance company will pay reasonable and necessary additional living expenses, generally for up to 12 months.

ADDITIONAL COVERAGE

Homeowner’s insurance generally provides the following additional coverage: Debris Removal. The policy usually covers a fixed amount toward the cost of having debris that is left as a result of the loss removed from the premises. Windstorm damage to trees, plants and shrubs is normally not covered. Ask your agent about the following additional benefits offered by some insurers for extra premium: Credit Card Coverage. Some insurers offer coverage for expenses arising from the misuse of your identity.

OTHER TYPES OF RELATED INSURANCE

Renters or Tenant Policy. If you are a renter, you do not need protection against damage to the building itself, but you do need protection against damage to or theft of your personal property and liability in the event someone is injured on the part of the premises you rent.

Condominium Owner Policies insure personal property and protect against liability in the event someone is injured in the condominium. Check with your condominium association and your agent before buying a policy to make sure you are adequately covered.

Mobile Homeowners Policy. The mobile homeowner’s policy is written specifically for mobile homes and includes coverage on the mobile home as well as theft and liability protection. Policies can differ significantly as can the premiums.

The above descriptions are generalized. It is important that you check your policy to determine the precise terms of your policy. Read through the policy to know your rights and the insurer’s obligations. If you do not understand your policy, ask your agent or company to explain it to you.

SMART SHOPPING

Different insurance companies charge different rates for the same coverage. Also, not all insurance companies provide the same level of claims service. Therefore, it makes sense to shop around for the best insurance company for your needs.

Insurance companies use one of three methods to sell their products. Independent agents represent several companies and can give you several quotes. Exclusive agents only sell the products of one insurance company. Direct market sales are over the Internet or by mail or telephone. You can find insurance companies and agents through the phone book, on the Internet and television or you can refer to the list of insurance companies in this premium comparison survey. If you purchase insurance via the Internet, be sure to verify that the company and agent are licensed to do business in Arizona.

Educate yourself on Insurance.

Remember to tune in to YCCA’s Hammer Time twice each weekend Saturday and Sunday at 7 a.m. on KQNA 1130 AM/99.9 FM or the web kqna.com. Listen to Sandy and Mike talk about the construction industry and meet your local community partners and contractors.